We are maintaining our NEUTRAL view on the media sector. The YTD March gross adex surged by +18.9% YoY on the back of the rise in the Pay TV (+69.2%), FTA TV (15.4%) and Newspaper (+0.5%) segments. On a MoM basis, March’s gross adex marked the first positive month-on-month growth in 2013 following the completion of the renegotiation of new advert rates for advertisers and coupled with the escalating general election fever and a low base effect. There is no change in our targeted 8.0% annual gross adex growth rate despite the strong adex performance YTD. We believe that consumers’ spending sentiment could potentially turn lower after the General Election (“GE”) in view of the upcoming cost push effect that would be mainly led by the subsidies rationalisation plan as well as the implementation of the GST. There are no changes to our media companies’ CY13-CY14 earnings forecasts. We reiterate our OUTPERFORM calls on Media Chinese International (“MEDIAC”, TP: RM1.23) and Star Publications (“STAR”, TP: RM2.94) while maintaining our MARKET PERFORM ratings on Media Prima (“MEDIA”, TP: RM2.31) and Astro Malaysia Holdings (“ASTRO”, TP: RM3.10).

YTD March gross adex advances by +18.9% YoY to RM2.7b according to Nielsen. The strong 1Q13 adex growth was mainly driven by the Pay TV (+69.2%), FTA TV (+15.4%) and the Newspaper (+0.5%) segments. Delving deeper, the higher YTD PAY TV segment was mainly due to an additional 10 channels (to 26 channels) being added to Nielsen’s Pay TV segment portfolio. On a MoM basis, the total adex growth has surged by +24.1% (vs. -13.4% in February) as a result of the escalating general election fever coupled with a low base effect from the shorter working month of February. Meanwhile, the completion of the renegotiation of new advert rates for advertisers for the first two months of the new year also helped to explain the strong jump in adex for March. On market shares, Pay TV continued to grow its share to 31.5% (vs. 22.1% a year ago) at the expense of the newspaper (36.2% vs. 42.9% previously) and FTA TV segments (24.9% vs. 25.7% previously). We are keeping our full-year CY13 annual adex forecast of 8.0%.

Newspaper March gross adex relatively flat at RM335m (+0.1% YoY). The relatively flattish growth in the Newspaper segment was mainly driven by a higher Chinese segment (+6.8% YoY) which was offset by the lower contributions from the English (-3.8% YoY) and BM (-0.3% YoY) segments. On a MoM comparison, all the language newspapers recorded a strong double-digit growth in March (BM (+57.7% MoM); Chinese (+26.1% MoM); and English (+48.9% MoM) as a result of the escalating general election fever. On the newspaper incumbents, MEDIAC’s 1QCY13 newspaper gross adex recorded a double-digit growth of +10.0% YoY while both STAR and MEDIA suffered lower growth rates of -4.3% YoY and -3.1% YoY respectively.

YTD Pay TV and FTA TV continue to rise. The two segments’ gross adex continued to climb by 69.2% YoY and 15.4% YoY to RM852m and RM674m respectively. On a MoM basis, both the Pay and FTA TV adex advanced on double-digit growth rates, in line with the broad adex trend. MEDIA’s 1Q13 gross TV adex meanwhile surged by +16.9% YoY to RM594m thanks to the strong performance of all its TV channels. On the Pay TV front, Astro PRIMA, Astro RIA and Astro Wah Lai Toi channels continued to rank as the top three highest adex generators as they contributed an aggregate of RM282m in gross adex or 33% of the total YTD Pay TV gross adex. On market shares, the Pay TV segment has improved by 950bps YoY to 55.8% at the expense of the FTA TV segment.

2013 adex outlook remains unchanged. Despite the strong growth in the YTD gross adex, we are reiterating our neutral view on the sector. There is no change in our targeted annual gross adex growth rate of 8.0% in view of the potential cost push effect post the GE that would likely be led by the subsidies rationalisation plan as well as the implementation of the GST.

Source: Kenanga